TY - JOUR
AU - Axelson,Ulf
AU - Jenkinson,Tim
AU - Strömberg,Per
AU - Weisbach,Michael S.
TI - Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts
JF - National Bureau of Economic Research Working Paper Series
VL - No. 15952
PY - 2010
Y2 - April 2010
DO - 10.3386/w15952
UR - http://www.nber.org/papers/w15952
L1 - http://www.nber.org/papers/w15952.pdf
N1 - Author contact info:
Ulf Axelson
London School of Economics
Houghton Street
London WC2A 2AE
Tel: +44 (0)20 7107 5070
Fax: +44 (0)20 7849 4647
E-Mail: u.axelson@lse.ac.uk
Tim Jenkinson
University of Oxford
Said Business School
Park End Street
Oxford OX1 1HP
UK
E-Mail: tim.jenkinson@sbs.ox.ac.uk
Per Stromberg
Institute for Financial Research (SIFR)
Drottninggatan 89
SE-113 60 Stockholm
Sweden
Tel: +46 8 728-5128
Fax: +46 8 728 5130
E-Mail: per.stromberg@sifr.org
Michael Weisbach
Department of Finance
Fisher College of Business
Ohio State University
2100 Neil Ave.
Columbus, OH 43210
Tel: 614/292-3264
E-Mail: weisbach.2@osu.edu
M2 - featured in NBER digest on 2010-09-01
AB - This paper provides an empirical analysis of the financial structure of large buyouts. We collect detailed information on the financing of 1157 worldwide private equity deals from 1980 to 2008. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by factors other than what explains leverage in public firms. In particular, the economy-wide cost of borrowing is the main driver of both the quantity and the composition of debt in these buyouts. Credit conditions also have a strong effect on prices paid in buyouts, even after controlling for prices of equivalent public market companies. Finally, the use of high leverage in transactions negatively affects fund performance, controlling for fund vintage and other relevant characteristics. The results are consistent with the view that the availability of financing impacts booms and busts in the private equity market, and that agency problems between private equity funds and their investors can affect buyout capital structures.
ER -